China - International Relations
The Chinese expansion in South America
Rafael Lima analyses the entrance of China in South America, noting that the growing Chinese presence means not only the purchasing of raw materials but also a strategic role in its investments in the continent. From Campinas.
It is true that China has moved aggressively to fill a vacuum left by the United States (U.S.) in Latin America in recent years. The U.S. are in a clear trend of decline, firstly because the global center of gravity has been radically changed by the emergence of the developing world, with countries such as China, Brazil and India, and secondly because the Americans have focused much of their attention on domestic problems such as debt, shrinking industrial capacity and the crisis over its financial position with regard to the dollar as a store of value. Add to this, wars in Afghanistan and Iraq.
Currently, China is manufacturing cars in Uruguay, has donated a soccer stadium to Costa Rica and has become Brazil`s largest trading partner. It is present even in countries like Chile, Peru, Mexico, Argentina and Venezuela. Besides trade, China now rivals the World Bank and the Interamerican Development Bank as the major creditor of Latin America. It is also opening doors for ordinary Chinese to visit Machu Picchu, Rio de Janeiro and other destinations.
The Argentine economist and consultant, Dante Sica, highlighted during a recent seminar entitled International Crisis and its Impacts on International Negotiations the growing presence of China in South America, noting that the country not only purchases raw materials but also plays a strategic role in investments.
The presence of Beijing has been increasing in trade. As example China has more than doubled its share of imports sent by South American countries since 2003. The share increased from 5.38% to 12.07% in 2008, according to the Federation of Chambers of Commerce and Industry of South America. Total imports rose more than 700%, from US$ 6.5 billion to US$ 54. 6 billion. China buys Peruvian zinc, copper from Chile and iron ore from Brazil. However, to Sica, the Asian giant is no longer just a buyer of raw material from South America, while it has been making heavy strategic investments in the region aiming to assure the necessary inputs for their industry.
In this regard note the doubling of Chinese-Venezuelan fund of US$ 6 billion to US$ 12 billion which was originally set up in 2007. The doubling of the fund, which took place in 2009, will ensure that Venezuela has enough funding to carry out development projects and maintain the growth of its economy in two or three years, despite the global crisis. Besides Venezuela, China has been negotiating a loan of US$ 1 billion for the construction of a dam in Ecuador and helped to shield the Argentine economy by signing an agreement for the exchange of currency in the amount of 70 billion yuans (US$ 10.2 billion), during a meeting in Medellin, Colombia. The agreements on exchange of currencies have also been discussed with Brazil and Venezuela.
For Brazil, China announced investments of US$ 12.8 billion in the telecommunications, mining, steel, metallurgy, pharmaceutical and electronics industries. They are also intending to invest in the sugar sector to produce acids such as citric and lactic through sugar cane juice. In neighboring Uruguay, China is producing cars through its biggest brand, Chery. In addition, the Chinese have managed to successfully penetrate the industrial and infrastructure works in the Andean countries of Venezuela and Peru. Moreover, they are also investing in the fishery sector in Chile and seek to be members of a major oil pipeline in Colombia.
The Chinese have managed to successfully penetrate the industrial and infrastructure works in the Andean countries of Venezuela and Peru.
The entrance of China in the region can bring many consequences to Brazil since according to the Ministry of Foreign Affairs of Brazil (MRE), the South America sub-continent accounts for 19% of the total current foreign trade of Brazil.
The chart shows how Brazil has been displaced from its traditional markets by China. Although in the case of MERCOSUR, in 2006, Brazil's share of total industrial imports of the block was higher than the Chinese one (32.5% and 13.2% respectively), there are concerns the speed with which China's participation has approached from Brazil. China has surpassed Brazil in the case of Chile and the Andean Community. Moreover, imports from ALADI countries stemming from Brazil and China have become increasingly more similar, with the difference that Chinese exports to the region are characterized by greater diversity.
A recent research shows that China still accounts for 29% of the Brazilian export market losses in Chile, and 11% in Argentina. However, it is important to observe that the losses for the period 2002-2004 compared with 2000-2002 trienniums are concentrated in just a few products such as shoes, mobile phones and air conditioning machines. Note also that it was between 2004 and 2007 that Chinese exports rose both in Brazil and in the other countries of the region.
At this point is important to take precautions not to blame only China for the growing difficulties experienced by some sectors in the Brazilian market. It is noteworthy that many of the losses stem from the recent exchange rate policy, the high tax burden, low investment in technology and the inadequacy of some actions taken by the Brazilian industrial policy. This same vision is shared by Jiang Shixue, a Latin America expert from the Chinese Academy of Social Sciences (CASS), whose works are used as guides by some policymakers in Beijing. For him, Brazil does not have a beneficial policy to the export sector so they cannot blame China for everything.
It is important to take precautions not to blame only China for the growing difficulties experienced by some sectors in the Brazilian market.
The countries of the South American subcontinent have different degrees of complementarity or competition with the Chinese economy and because this there is a diversity of ways to 'feel' the Chinese presence in the region. For the president of the Brazilian Association of Infrastructure and Basic Industries (Abdib), Paulo Godoy, especially in the case of Brazil, it must be careful if it wants keep a trend which has been consolidated in recent years towards regional leadership. China, as observed by him, is aligning its financial component with a huge competitive edge coming from a cheaper and larger labor force.
However, in recent years, the trade pattern indicates that the countries of South America have been increasing their exports of raw materials while they have been increasingly importing quantities also of manufactured goods from China. While the Lula government has placed South-South cooperation, especially that one related to MERCOSUR on a new and more qualified level, it failed to establish mechanisms that lead to the diversification of trade flows, expansion of investment and a productive new partnership to broaden advantages of domestic products of higher added value.
If on the one hand there were no concerns about the fact that Brazil is also benefited by the exports of primary commodities to China, on the other hand, in the industrial sector, the index of coincidence of expertise with the Emerging Power of the East is higher. Because of this, some Brazilian productive sectors such as the automotive, for instance, suffer the competition of Chinese production more directly.
There is clear evidence that while Brazil has been unable to carry out projects like the Integration of Regional Infrastructure in South America (IIRSA in Portuguese), which would bring many benefits to Brazilian exports to its most immediate regional partners, it is likely that China still will continue financing ports, roads, railways and other infrastructure projects in South America to reduce costs and time of transporting the products of the region to Chinese ports. What happens is that the same infrastructures are used both to sell goods produced by the South American countries as a gateway for Chinese products. Added to this is Brazilian private capital that has eyes almost only for agricultural production and the State that prays for its absence from the economy and investments. However, precisely the presence of the Chinese state in the economy is the factor that gives it competitiveness.
Therefore, we can not argue that the commercial trade of China with the countries of South America is subtractive, just the opposite, it is the commercial relations with China which led the increase in income to the region’s countries and also provided more room for maneuver to the countries of South American in the international scene, including to Brazil.
What is evident is that if appropriate state policies are not implemented, the kind of insertion of Brazil into the global economy will likely be highly disadvantageous. Therefore, Brazil must take advantage of the favorable environment even leveraging its natural resources to create and/or expand policies focused on avoiding specialization in primary commodities and to encourage and diversify its industrial production generating higher value-added products, competing aggressively in the international market, integrating regional markets in practice and not just in speeches, putting in place measures to put the country in the way of regional leadership while in fact it brings wealth to all the nation and manage mechanisms that allow the distribution of that wealth to the whole population.